NEW YORK (CNN/Money) -
Stocks eked out modest gains Tuesday after the Federal Reserve raised a key short-term interest rate by a quarter-percentage point, as expected, and said that rates can continue to rise at a measured pace.
The Dow Jones industrial average (up 38.13 to 10,676.45, Charts) and the Standard & Poor's 500 (up 4.70 to 1,203.38, Charts) index both rose nearly 0.4 percent. The Nasdaq composite (up 11.34 to 2,159.84, Charts) added around 0.5 percent.
The three indexes had spent most of the session just above unchanged, but found a second wind after the Fed's afternoon announcement reassured investors about the health of the economy.
At its meeting Tuesday, the central bank's policy-makers opted to raise the fed funds rate, an overnight bank lending rate, to 2.25 percent from 2.0 percent. It was the fifth increase this year and one that was widely expected.
The decision was released just after 2:15 p.m. ET. (For more on the Fed decision, click here.)
"It was 25 basis points, everyone knew that, and so there's virtually no stock market reaction," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.
In its accompanying statement, the Fed kept its language nearly unchanged from the previous statement, acknowledging the impact of higher oil prices and a still struggling labor market, as well as saying that inflation concerns remain well contained.
What is positive about the statement is that it shows the Fed thinks the economy is growing solidly, but neither too fast, nor too slow, said Stephen Stanley, chief economist at RBS Greenwich Capital. That seemed to reassure investors, and stocks gained and sustained those gains through the afternoon.
"What stock investors probably need to be thinking about now is 'what are profit margins doing?'," Stanley added. "A little inflation wouldn't be so bad for the stock market, for Corporate America, but it wouldn't be good for the economy or the consumer."
Wednesday morning, before the bell, brings earnings from Best Buy and Lehman Brothers and the NY Empire State index, a read on manufacturing in the New York area.
Best Buy is expected to have earned 44 cents per share, up from 37 cents a year ago, according to First Call estimates.
Lehman Brothers likely earned $1.68, down from $1.71 per share a year ago.
The NY Empire State index likely rose to 20 in December from 19.76 in November, according to economists surveyed by Briefing.com.
On the move
A number of techs gained on the session, with chip gains and a deal in software firing up the sector for a second session in a row.
Stocks rallied Monday on a slew of deal news, the highlight of which was news that software leader Oracle has finally struck a deal to buy PeopleSoft, ending an 18-month hostile takeover battle.
Symantec may be close to buying Veritas Software, the New York Times reported Tuesday, in a deal that could be worth more than $13 billion.
Veritas (up $2.19 to $27.38, Research), which makes computer data storage software, soared 8.7 percent in active Nasdaq trading while Symantec (down $5.41 to $27.45, Research), maker of Norton anti-virus software and other products, sank 16.5 percent on the news.
Chip stocks inched higher, supporting the Nasdaq. Intel (up $0.61 to $23.24, Research) gained 2.7 percent and the Philadelphia Semiconductor (up 7.92 to 433.02, Charts) index, or the SOX, added almost 1.9 percent.
A.G. Edwards reiterated its "buy" rating on Intel and boosted its 12-month price target to $30 from $28.
In other news, General Electric (down $0.10 to $37.38, Research) reaffirmed 2004 and 2005 earnings guidance, citing strength in its financial and energy units.
Alcoa (down $0.56 to $31.75, Research) sank 1.7 percent, weighing on the Dow industrials, after J.P. Morgan cut the aluminum producer to "neutral" from "overweight." The brokerage cited concerns about higher costs and slowing demand.
Dow component Boeing (down $0.03 to $52.64, Research) said late Monday that it was boosting its quarterly dividend to 25 cents a share from 20 cents, effective March 4. Shares were little changed.
Market breadth was positive. On the New York Stock Exchange, advancers topped decliners 5 to 3 on volume of 1.54 billion shares. On the Nasdaq, winners beat losers 3 to 2 on volume of 2.25 billion shares.
A report released before the open showed that the trade gap widened to a record $55.5 billion in October, as rising oil prices caused an increase in imports. The figure surpassed the expectations of Wall Street analysts, who were looking for a deficit of about $53 billion, according to Briefing.com.
Treasury prices recovered after the Fed news, turning higher after having spent the morning lower in response to the trade gap numbers.
The 10-year note gained 7/32, pushing its yield to 4.12 percent, down from 4.15 percent late Monday. Bond prices and yields move in opposite directions.
U.S. light crude oil for January delivery added 81 cents to settle at $41.82 a barrel on the New York Mercantile Exchange.
In currency markets, the dollar retained gains versus the euro and yen.
COMEX gold fell $3.20 to settle at $437.30 an ounce.
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